Retiring SEC Lawyer: Agency Too Lax on Wall Street
James Kidney had worked for the Securities and Exchange Commission as a trial attorney since 1986, winning more than a half-dozen insider trading trials.
But if anyone expected him to simply retire quietly with his nice pension – they were mistaken. According to Bloomberg News, the veteran lawyer used his retirement speech to blast the agency for its failure to take Wall Street to task for the 2008 mortgage crisis.
The SEC lacks the kind of enforcers who hold a firm belief in afflicting the powerful and comfortable, Kidney said. Regulators have become hyper-focused on policing the windows on the first floor, rather than taking action against those on the penthouse floors.
Our Miami foreclosure lawyers know that the agency has been hammered in recent years by external critics – us included. Judges, advocacy groups and lawmakers have slammed the agency repeatedly for the easy hand it’s taken with financial firms that caused the economic meltdown. But this is the first time someone from inside has chastised the leadership and called for reform.
Kidney was quoted as saying that even when officials do go after the top executives in Wall Street, there is a certain degree of “good manners” that appears to be valued above all else. Tough enforcement, he said, is considered risky and there are directives to avoid it – to the detriment of ordinary Americans.
In a speech before a crowd of about 70 people, Kidney asserted his superiors were “fearful” and “tentative”he said higher-ups weren’t as concerned with justice as they were securing cushy, high-paying consulting jobs after their government service was over. Taking firms to task that they might later court for a job didn’t serve this purpose well.
And in an ode to the laughable penalties that are occasionally inflicted on banking firms and executives, Kidney called those fines a “tollbooth on the bankster turnpike.”
In a later interview, the retiree stressed that he’s loyal to the SEC. He maintains there are good people there. What he was offering, he insists, is constructive criticism. He’s said there is no one case or singular official about which his remarks were directed.
He further pointed out that the SEC was and is uniquely situated to take Wall Street to task because, unlike the U.S. Justice Department, it isn’t required to prove its claims beyond a reasonable doubt. As a civil enforcement agency, the standard of proof required in SEC cases is lower. Kidney maintains that the agency should be taking full advantage of that, particularly given that the Justice Department has taken very little action on these matters as well.
One of the biggest cases to arise out of the crisis was the lawsuit against Goldman Sachs. The firm had deceived investors in packaging collateralized debt obligations linked to subprime mortgages. For this, it agreed to pay a $550 million penalty.
Insiders familiar with the case say it was no secret that Kidney pushed to take executives to task. The SEC responded by reducing his role in the case. Rather than continuing on in that lesser role, Kidney simply removed himself.
He reportedly pushed for action against other high-level financial firm executives as well, but his superiors shot him down each time. The message, he now says, was clear: Don’t take too many risks.
Perhaps if those at the helm of these financial firms had sent the same kind of message prior to the economic collapse, the wounds of the Great Recession might not have run so deep.
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